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When Different Doesn’t Work

In January I tore through Blake J. Harris’ new book Console Wars, a character driven narrative chronicling Sega and Nintendo’s battle for video game dominance in the 1990s. Under the leadership of Tom Kalinske, Sega catapulted from roughly 5% market share to over 50% in less than five years…eclipsing Nintendo as the most profitable (and, more importantly, coolest) video game company on the planet.

As a history buff and lifelong gamer, reading material doesn’t get much better than this. There’s nothing that gets me more hot and bothered than a good business success story — much could be said about the brilliance of Kalinske and his team — but a fall from grace can be equally intriguing. While it took less than a decade for Sega to pull ahead of Nintendo, the company lost its footing just as quickly…and the scales never tipped again. It won’t take much market research for the uninitiated to discover that Sega is essentially dead, while Nintendo remains a major player in the world of video games and consoles.

So why the downfall? The decline of any business can be attributed to a number of factors and complications — pointing to one rarely paints the whole picture. In Sega’s case, Kalinske was dealing with a leadership team at Sega Japan that took back the company reigns at the height of Sega North America’s success. They were also dealing with a younger, wiser Nintendo that had unwavering customer loyalty in Japan and, thus, a rapidly replenishing war chest to fund the battle over the North American market. But these issues were ancillary…

Take another look at the image that accompanies this post. “Genesis does what Nintendon’t.” The Genesis console and, of equal importance, the Sega brand were deliberately positioned as the antithesis to Nintendo and their comparable console offerings. This was no accident. Kalinske and his team carefully curated a company image that ran counter to everything Nintendo stood for. Where Nintendo was cutesy, Sega was edgy; where Nintendo played to a younger audience, Sega captured the attention of teens; where Nintendo was conservative, Sega was anarchistic.

While this worked at first — different normally does — Kalinske was guided by this anti-Nintendo principle to a fault. At times against his better judgement, Kalinske programmed himself to be a “yes” man in the face of a competitor that firmly represented the “no” man. Nintendo had non-negotiable licensing requirements, so Kalinske opened up the Sega ecosystem for 3rd party developers. Nintendo maintained strict quality controls and game testing procedures, so Sega lowered the quality bar and allowed risky or unproven game concepts on the Genesis. Nintendo mandated censorship of blood, gore, or mature themes, so Sega became the platform upon which controversial games were first encountered.

Even during Nintendo’s darkest days while the Sega movement was reaching critical mass, their games, their messaging, and their quality remained cohesive. As a result, Sega and Kalinske were forced to take chances on edgier titles and strategies…even when they acknowledged that they were sailing in treacherous waters. The immediate numbers, the market share, the cool factor took precedence over building a brand identity and gaming ecosystem that would stand the test of time. They had to do what Nintendon’t.

One of my favorite entrepreneurs / influencers on the planet, Seth Godin, published a post in February that spoke to the inherent dangers of business tribalism:

“It’s tempting to enjoy the short-term rush that comes from hating the other guys. It’s certainly a good way to get the crowd on its feet. But it doesn’t last.”

Different doesn’t work…not forever. It didn’t for Sega. To be sure, the fact that Kalinske’s strategy worked for as long as it did is a testament to his marketing genius. The brilliance of his team was in their ability to do much with little. They were observant enough to notice a David vs. Goliath opportunity, one that would split the gaming populace into warring factions. Mario vs. Sonic. Cute vs. cool. The Wonder Years vs. Beavis & Butt-head. Unfortunately, the commitment to an anti-Nintendo identity meant Sega could do little to pivot once their competitor began tinkering with their own brand identity. Once Sega’s cloud of cool dissipated, the games were forced to stand on their own. Goliath smote David.

The ultimate result is a Sega that hasn’t been relevant for 15 years…and a Nintendo that released a new portable console last month. I guess they had it right. Sega does what Nintendon’t.